The week that was …
Economic round-up
UK/EU trade deal
The UK and the EU reached a new post-Brexit trade agreement, including the alignment of agricultural standards, an extension of fishing rights and plans for a youth mobility scheme. Read more from the BBC here
Trade tensions reignited
President Trump sparked new trade tensions last Friday, threatening a 50% tariff on all goods sent to the US from the European Union. He also warned Apple he would impose a 25% import tax on iPhones not manufactured in America. Read more from the BBC here
UK inflation
UK CPI inflation jumped by more than expected in April after significant increases in water bills, energy costs and council tax. Prices rose 3.5%, over the month, ahead of consensus expectations of a 3.3% increase. Read more from the Guardian here
Japan inflation
Japan’s core inflation accelerated to 3.5% in April, with surging rice prices a particular contributor. Even so, the central bank is still considering pausing further rate hikes to assess the impact of US tariffs. Read more from CNBC here
UK retail sales
UK monthly retail sales climbed 1.2% in April – significantly ahead of the 0.2% jump expected by economists. British shoppers increased spending on food and household goods, giving the high street its best month in nearly two years. Read more from the Times here
US business confidence
The S&P Global Composite PMI of US business confidence rose to 52.1 in May’s flash estimate – from 50.6 in April – with strength across both manufacturing and services. This provided some reassurance that business activity in the US private sector continued to expand. Read more from FX Street here
China retail sales
Chinese retail sales slowed to 5.1% in April from an increase of 5.9% in March. Consensus expectations among economists had been for higher growth of around 5.5%. China’s industrial output in April grew 6.1% from a year earlier, also slowing from March. Read more from Reuters here
UK business confidence
According to May’s flash reading of the UK’s purchasing managers index (PMI), business confidence in the UK rebounded from April’s recent low and price pressures moderated. Sunny weather also provided a boost to business activity in some parts of the economy. Read more from S&P here
German business confidence
The IFO Business Climate index, the benchmark of German business confidence, rose to 87.5 in May from 86.9 in April – slightly above market forecasts. Read more from FX Street here
Markets round-up
Stockmarkets sell off
European and US stocks slumped as president Trump threatened 50% tariffs on European goods from 1 June and a 25% charge on iPhones sold in the US. The S&P 500 saw its steepest weekly fall since March. Read more from Reuters here
Investors turn sour on US debt
Major investors have started to diversify their bond portfolios away from the US, amid growing concerns on the US deficit in the wake of president Trump’s “big, beautiful” tax bill, which was passed by the House of Representatives on Thursday. Read more from the FT here
US dollar woes
The US dollar dropped again as president Trump ratcheted up trade tensions with the EU. Investors were also concerned about that “big, beautiful bill”, which threatens to add $3.3tn (£2.4tn) to US debt. Read more from Reuters here
US treasury market ‘orderly’ – IMF
Amid growing concern around US debt levels, the IMF said the US treasury market remained ‘orderly’ – although the organisation added it was monitoring tax plans taking shape in Congress. Read more from Reuters here
“Emerging market fundamentals look compelling relative to developed markets across a range of metrics, including debt-to-GDP ratio, fiscal deficits and current account deficits.
Selected equity and bond markets: 16/05/25 to 23/05/25
| Market | 16/05/25 (Close) |
23/05/25 (Close) |
Gain/loss |
|---|---|---|---|
| FTSE All-Share | 4725 | 4724 | -0.2% |
| S&P500 | 5,959 | 5,803 | -2.6% |
| MSCI World | 3,863 | 3,803 | -1.6% |
| CNBC Magnificent Seven | 330 | 322 | -2.5% |
| US 10-year treasury (yield) | 4.48% | 4.52% | |
| UK 10-year gilt (yield) | 4.65% | 4.68% |
Investment round-up
M&G launches European value fund
M&G Investments has launched a Europe-ex UK fund. It will be managed by value manager Richard Halle, supported by deputy fund managers Daniel White and Shane Kelly.
Jupiter targets £15m in cost-cuts
Jupiter is looking to cut another £15m in costs as part of an ongoing strategic review of its business model. The aim is to reduce complexity and the group hopes to achieve this by the end of 2026.
Pease to advise Rockwood Strategic
European equity fund manager Richard Pease is to become an adviser to UK smaller companies trust Rockwood Strategic. He will work alongside manager Richard Staveley and other members of the investment advisory group, which includes Harwood Capital’s Chris Mills, to generate investment ideas and provide advice.
Lombard Odier launches high-yield strategy
Lombard Odier Investment Managers has launched a global high yield fund. Managed by Anando Maitra, LOIM Liquid Global High Yield will use high-quality and liquid cash bonds and credit derivatives to provide efficient exposure to high-yield markets.
Royal London expands private assets reach
Royal London has acquired UK-based infrastructure asset manager Dalmore Capital as it looks to broaden its private assets capabilities. Dalmore manages some £6bn in assets across five funds.
Riverstone board proposes closure
The board of Riverstone Energy has agreed to wind down the company – selling the assets and returning the proceeds to shareholders – a move that will require shareholder approval.
… and the week that will be
EU/US relations
President Trump dropped his latest bombshell just ahead of the Bank Holiday weekend – and progress, or otherwise, on trade talks is likely to dominate much of the next week. It seems probable the move is an attempt to put a rocket up EU negotiators and speed up the process – however, that is not the EU way and the stalemate may jeopardise the recent recovery in global equity prices. Read more from the FT here
Nvidia results
The semiconductor giant is the last of the ‘Magnificent Seven’ to report earnings and could be a bellwether for Wall Street sentiment over the next week. If it shows signs of slowing, it may be another nail in the coffin of the dominant AI trade. The US stockmarket may also be hit by worries over rising US treasury yields. Read more from Reuters here
The week in numbers
US GDP: Consensus expectations for the second estimate for Q1 are for no change to the current reading of 0.3% quarter-on-quarter growth.
US consumer confidence: The consensus forecast is the May reading will fall to 84 from 86 the month before.
Federal Reserve minutes: The US central bank is expected to release the minutes of its most recent interest rate decision on Wednesday.
US personal consumption: US core price growth – as measured by the personal consumption expenditures (PCE) price index – is expected to be 0.2% month-on-month in April, up from 0% in March.
Company news: Earnings reports expected from Auto Trader, Best Buy, C&C Group, CostCo, Hollywood Bowl, HP, Nvidia and Pets at Home.
In focus: Emerging opportunity
In the same week the US launched a bill adding $3.3tn (£2.4tn) to its deficit, Brazil announced a strict cost-cutting exercise in order to stay within its fiscal rules. It was a neat reminder that, increasingly, it is emerging markets that are sticking to economic orthodoxy, while the world’s largest economy plays fast and loose with its finances. Could this finally make a meaningful difference to the weak sentiment that has weighed on the performance of emerging markets for so long?
As one positive, the fixed income team at Bluebay point to the burgeoning gap between the levels of emerging market and developed market debt, noting: “While developed markets grapple with a higher debt-to GDP ratio of 126.5%, emerging markets have a moderate 69.4% debt-to-GDP ratio, on average. Emerging market fundamentals look compelling relative to developed markets across a range of additional metrics, including fiscal deficits and current account deficits.”
They continue: “Many EM countries have implemented sound fiscal and monetary policies over the last few years, building stronger macroeconomic foundations that will lower gross financing needs. As a result, we saw a decisively positive trend in EM sovereign ratings in 2024, which is likely to extend to 2025.”
For more on emerging markets, read Welcome to the tipping point for ‘Emerging Markets 2.0’ here
Partly this is born of necessity – after all, emerging markets have not had the fiscal flexibility to take on the same amount of debt as the US. Either way, it should allow emerging markets to grow faster, while higher debt repayments weigh on growth in the US.
Here, Moody’s suggests interest payments in the US are on a path to consume 30% of the federal government’s revenue by 2035, compared with 9% in 2021. Efforts to reduce the deficit – through initiatives such as the Department of Government Efficiency – have so far proved ineffective.
Nevertheless, emerging markets have been growing faster than the US for some time yet it has not made any real difference to stockmarket performance – indeed, only India has rivalled the US stockmarket for growth over the past decade. The IMF continues to forecast growth of 3.7% in emerging markets, with Asia – at 4.5% – a particular stand-out. For its part, the US is forecast to grow at 1.8% – a projection that looks increasingly precarious as the White House continues with its erratic strategy.
If the dollar just stops going up, it is super-positive for the rest of the world, including Europe, Japan and emerging markets.”
For Anuj Arora, head of emerging market and Asia Pacific equities at JP Morgan Asset Management, the real key to a turnaround in emerging markets is the sliding US dollar. “For the first time, for as far back as we can go, the US dollar has underperformed in a risk-off environment,” he says. “This has not been seen in 30 or 40 years.” Arora believes this will be critical for emerging markets in the coming months, adding: “If the dollar just stops going up, it is super-positive for the rest of the world, including Europe, Japan and emerging markets.”
Perhaps most importantly, it may finally give emerging market central banks space to cut rates. Arora gives the example of Brazil, explaining: “Brazil has policy rates of 14.25%. Inflation is only 5.5%. Why hasn’t Brazil been able to cut? Because the dollar has been so strong. But now it can.”
Brazil may be the most extreme example but there are examples of this happening all over emerging markets and, Arora believes, it could kick-start domestic consumption. “These markets are among the biggest beneficiaries of the US macro being more challenged,” he concludes.
Before we become too carried away, however, the looming tariff cloud is tough to ignore. Historically, exports and earnings have been highly correlated in emerging markets, so the latter could suffer if president Trump presses on with tariffs at their current level. Certain markets, such as Korea and Taiwan, look particularly vulnerable.
This prospect has led many emerging market fund managers to refocus on areas with a strong domestic growth story. For his part, Nick McConway, head of Asia ex-Japan equity at Amundi Asset Management, points out the economic fortunes of the likes of Turkey, the Philippines, India and even China have relatively little to do with the global economy. He gives the example of CATL in China, the biggest battery manufacturer in the world, which has no business in the US, observing: “It has a dominant position in the biggest EV market in the world – China – and is growing aggressively around the world.”
We are witnessing a developed-market slowdown, increased tariffs, low visibility on capex and the type of unorthodox monetary policies that have not been seen in decades. That is really quite problematic for business decision-making.”
India is another area with real potential, argues McConway, adding: “It is likely to growth at 5%-plus for the foreseeable future. The Indian middle class is now 300 million – the same size as the entire US population – and growing quickly. There is so much opportunity in India – if you can get these companies at the right valuation.”
He continues: “We are witnessing a developed-market slowdown, increased tariffs, low visibility on capex and the type of unorthodox monetary policies that have not been seen in decades. That is really quite problematic for business decision-making. Within the emerging market universe, we look for country exposures that are less exposed to the global economic cycle.”
McConway says there were valid reasons for the ‘US exceptionalism’ of the last decade or so, but expansionary policies were kept in place for longer than they should have been. “This leaves the current administration with real difficulties it has not yet shown signs of being able to reverse,” he says. “This is good for countries that have been more capital-constrained and have had to run conservative monetary policies. They are now able to ease and there is less pressure on their currencies.”
What is more, there is still a lot going on in emerging markets at a stock-specific level. China may be taking the lead in areas such as renewable energy, battery storage and even be flexing its muscles on AI, but innovation in emerging markets is not confined to the world’s second largest economy. From e-commerce in Brazil to the semiconductor supply chain in South East Asia, there are exciting sectors across the emerging markets.
A final note of caution, however, is sounded by James Calder, chief investment officer at City Asset Management, who remains worried by the challenges of the global situation. “The outlook is difficult and we still have an issue with the tariffs on China,” he says. “Will China manage to find other places to finish and sell its goods? It certainly looks cheap, but there are plenty of places that look cheap.” Calder believes emerging markets merit a place in a diversified portfolio, but struggles at present to see the sector as a bargain.
Fair enough – but the reality is that the US’s loss could ultimately be emerging markets’ gain. The more pressure on the dollar, the better it is for emerging market central banks. Add in relative valuations and stronger economic growth and the sector looks ripe for a reappraisal.
Read more on this from the BBC here, from Bluebay here and from the IMF here
In focus: UK/EU reset
Depending on which side of the Brexit divide you stand, the EU/UK trade deal was either a ‘Brexit betrayal’ or a pragmatic reset of relations with the UK’s largest trading partner. For their part, fund managers and business people alike appeared to welcome the normalisation of trading relations, even if its early impact could be limited.
The deal included the harmonisation of agricultural standards, which should help UK businesses avoid expensive red tape at the border. There is also a new security and defence partnership, which will allow the UK to participate in the European defence fund. In due course, British holidaymakers will be allowed to use passport e-gates. The EU fishing quotas have been extended until 2038, giving European boats continued access to British waters. In exchange, UK fisherman will receive access to European markets so there should be advantages on both sides.
The impact for the UK economy is likely to be relatively restrained, with current estimates suggesting it could add around £9bn while also lowering food prices. More important, however, could be the optics – it is a sign of a more mature attitude to relations with the UK’s nearest neighbours. As Darius McDermott, managing director at FundCalibre, puts it: “The trade deal with the European Union offers a clear message to global investors: the UK is ready to be the grown-up in an uncertain world.
“The deal may only move the dial at the margin but it is another momentum-marker showing prime minister Kier Starmer is getting serious about making the UK investable again. The UK was the first country to secure a post-tariff deal with the US and we have also seen the signing of the Mansion House Accord, which will have 17 of the UK’s largest pension schemes direct more capital into private British assets, such as venture capital and critical infrastructure.”
Pimco economist Peder Beck-Friis takes a similar view, observing: “The deal provides incremental progress, particularly by reducing frictions in food exports, which could help support trade activity and economic co-operation over time.” He suggests that further progress could be achieved by aligning on regulatory standards.
The importance of this particular deal may be magnified by Donald Trump’s announcement on Friday that he was considering 50% tariffs on all EU goods. The US president may have become frustrated the EU’s traditional ‘slowly, slowly’ approach to trade negotiations may be robbing him of his quick win and threatening higher prices for US consumers. Against this backdrop, the UK/EU relationship begins to look like a source of major stability for businesses.
